Who is liable for VAT? When it applies
In principle, every business that makes supplies or provides other services in Germany for consideration is liable for VAT. This applies from the first euro of turnover, to sole traders and freelancers just as much as to GmbHs. The only exception is small businesses: since 2025, your turnover remains tax-exempt if it did not exceed 25,000 euros in the previous year and does not exceed 100,000 euros in the current year.
Who counts as a business?
Under § 2 UStG (German VAT Act), a business is anyone who independently carries out a commercial or professional activity. This means any sustained activity aimed at generating income. Neither an intention to make a profit nor a particular legal form is required.
Businesses within the meaning of VAT law therefore include, for example:
- Sole traders, tradespeople and retailers
- Freelancers such as designers, consultants or doctors (even though many medical services are tax-exempt)
- Partnerships and corporations such as a GbR, GmbH or UG
- Part-time self-employed people, for example with an online shop alongside their job
- Landlords, insofar as they generate sustained income
Under § 1 UStG, taxable transactions are mainly supplies and other services that a business provides in Germany for consideration within the scope of its business. Some transactions are tax-exempt (§ 4 UStG), such as certain medical treatments or the long-term letting of residential property. You nevertheless remain a business.
From when are you liable for VAT?
VAT liability begins with the business activity, not only once a certain turnover is reached. Even preparatory activities such as purchasing equipment can count. That is why the tax office already asks in the tax registration questionnaire whether you want to use the small business scheme.
Whether you actually show and pay VAT therefore depends above all on one question: are you a small business?
Exception: the small business scheme
Since 1 January 2025, the new version of § 19 UStG has applied. Your turnover is tax-exempt if your total turnover
- did not exceed 25,000 euros in the previous calendar year and
- does not exceed 100,000 euros in the current calendar year.
Older guides often still cite lower thresholds such as 17,500 and 50,000 euros, which no longer apply since 2025. The mechanism is also important: the 100,000 euros is a hard limit. In the view of the BMF (Federal Ministry of Finance), the very transaction with which you exceed the limit in the current year is already subject to standard taxation. In the year the business is founded, turnover must not exceed 25,000 euros.
As a small business, you
- do not show VAT on invoices and refer to the tax exemption under § 19 UStG,
- do not submit advance VAT returns, because § 18(1) to (4) UStG does not apply,
- in return, cannot deduct input tax from incoming invoices.
You can waive the small business scheme. The waiver binds you for at least five calendar years (§ 19(3) UStG). This can be worthwhile if you are planning large investments and the input tax on them would be higher than the VAT on your sales, or if your customers are mainly businesses entitled to deduct input tax.
Small businesses and e-invoicing
Since 1 January 2025, all domestic businesses must be able to receive e-invoices. This expressly also applies to small businesses. According to the BMF letter of 15 October 2025, a normal email inbox is sufficient for receipt by email; a separate inbox just for e-invoices is not required.
There is a simplification for issuing invoices: under § 34a UStDV (German VAT Implementing Ordinance), invoices from small businesses may always be transmitted as other invoices, i.e. on paper or, with the recipient's consent, in another electronic format such as PDF. You may nevertheless issue an e-invoice at any time without the recipient's consent. Read more in our checklist for mandatory e-invoicing.
The advance VAT return (UStVA)
Anyone applying standard taxation regularly declares VAT and input tax via the advance VAT return. It is transmitted electronically via ELSTER or connected software. You can register for ELSTER at elster.de.
When do I have to submit the advance VAT return?
The advance return must be transmitted by the 10th day after the end of the advance return period, and payment is due on the same day (§ 18(1) UStG). Which period applies depends on the tax of the previous year (§ 18(2) UStG):
| VAT in the previous year | Advance return period |
|---|---|
| more than 9,000 euros | monthly |
| up to 9,000 euros | quarterly |
| up to 2,000 euros | exemption from advance returns possible |
Do founders have to file monthly?
In principle, new businesses must file monthly in the year they are founded and in the following year (§ 18(2) sentence 4 UStG). For the tax periods 2021 to 2026, however, this obligation is suspended: in that case, what counts is the expected tax for the current year or, if the business was founded in the previous year, the actual tax extrapolated to a full year. Anyone founding a business in 2026 with a low tax burden is therefore not automatically required to file monthly. You should check before the turn of the year whether the legislator extends the rule beyond 2026.
Permanent deadline extension
If the 10th of the following month is not enough time for you, you can apply for a permanent one-month deadline extension (§ 46 UStDV). Monthly filers make a special advance payment of one eleventh of the total advance payments of the previous year (§ 47 UStDV). The special advance payment is offset against the advance payment for December.
Practical tip
With faktoora, you can transmit the advance VAT return via the ELSTER connection. You check the information before sending and then submit the return directly to the tax office. You can find the necessary settings in the guide to the ELSTER settings.
By the way, when VAT arises depends on your taxation method. The article on accrual-basis and cash-basis taxation explains the difference.
Note: This article is for general information purposes only and does not replace tax advice.
Frequently asked questions
Who is liable for VAT?
Every business within the meaning of § 2 UStG, i.e. anyone who generates income independently and on a sustained basis. Small businesses under § 19 UStG are exempt from VAT on their turnover.
From when are you liable for VAT?
From the start of the business activity. You have to pay VAT as soon as you exceed the small business thresholds of 25,000 euros in the previous year or 100,000 euros in the current year, or voluntarily waive the scheme.
When are you liable for VAT if you are self-employed part-time?
Just as if you were self-employed full-time: the activity makes you a business. If your turnover remains below the thresholds, you can use the small business scheme.
Do small businesses have to send e-invoices?
No. Small businesses may continue to issue paper invoices or, with the recipient's consent, PDF invoices. Since 2025, however, they must be able to receive e-invoices.
As a founder, do I have to file the advance VAT return monthly?
Not automatically for 2021 to 2026. In these years, the expected tax determines the advance return period.